Thursday, 23 February 2017

US National debt is now close to $20 trillion

Due to underlying structural problems, US government spending is rising on automatic pilot.

  • Eighty percent of the spending increase over the next 10 years will go for Social Security, Medicare, Medicaid (the “entitlements”) and interest on the national debt, unless entitlement programs are altered to lengthen their lifespans.
  • Right now, U.S. government debt is equal to about 77 percent of the gross national product (GNP), the total annual output of U.S. goods and services.
  • The figure could to rise to 89 percent by 2027, and to 145 percent of GNP 30 years from now.
  • Interest costs are likely to rise from $270 billion this year to $768 billion in 2027. Absent reform, things would get worse from there. Interest payments would rise from 1.4 percent of the economy (GDP) last year to 5.8 percent in 2046.
  • As interest costs rise, an aging population and rising health care costs will further increase pressure on the federal budget, making it increasingly difficult to fund other important national priorities, from defense to medical research. 
  • Increased risk of a fiscal crisis could drive interest rates even higher. 
  • A steadily rising debt is unsustainable, and that aging of the population, rising health care costs, and increasing interest costs will continue to drive up the debt with no end in sight, assuming no changes in American laws.
  • It isn’t exclusively a spending problem but changes need to take place on the revenue side as well.
  • Under the current political situation, the debt is a bipartisan problem and requires bipartisan solutions. Neither party wants to go it alone on cutting important programs and boosting tax revenues.
  • To avoid such risks to economy and the nation’s future, elected officials must pursue broad fiscal reforms soon. Interest costs are not something that lawmakers and the president can control directly. Avoiding a dangerous upward spiral in those costs in the future will require greater fiscal discipline throughout the federal budget.
  • The focus should be on future generations. Younger people have the most at stake in what direction the national debt chart takes.
  • These are solvable problems that need to adjust national policies and build sustainable operations.
  • Steep tax cuts without spending reductions might stimulate the economy, but they would result in further burgeoning of the national debt.  
  • The longer Washington continues to procrastinate on budget reforms, the more taxpayers today and in the future can expect to pay more just to service the growing federal debt. That’s not the path to prosperity.
My View:
Left to themselves, things tend to go from bad to worse. 
It is the responsibility of the Government to reduce expenditure, increase revenues and bring down national debt to manageable levels. Otherwise they will lose credibility, ratings will go down, and end up borrowing at higher interest rates to settle lower interest debts due for repayment and end up in vicious cycle that could result in payment defaults. Unless reformed, US national debt will continue to rise and USA will be permanently trapped in ever increasing national debt, forever.

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